5 Stocks Poised for Breakouts - views

WINDERMERE, Fla. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high or takes out a prior overhead resistance point, then it’s free to find new buyers and momentum players who can ultimately push the stock significantly higher.

One example of a recent successful breakout trade is independent oil and gas player GMX Resources (GMXR), which I featured in Feb. 26’s “4 Stocks Under $10 Moving Higher” at around $2.16 a share. I mentioned in that piece that shares of GMXR had recently plunged dramatically from $7.50 to $1.80. That move had pushed shares of GMXR into extremely oversold territory, since its relative strength index reading had hit 18.33. I suggested that traders should look for long-biased trades in GMXR as long as it was trading above $1.96 or $1.80, and then once it triggered a breakout above some near-term overhead resistance at $2.50 a share with high volume.

Guess what happened? Shares of GMXR never looked back after I highlighted the stock in my watchlist article, and it has triggered that breakout today with massive upside volume. At last check, shares of GMXR have soared over 75% hitting an intraday day high of $4.36 a share. That’s a ridiculous gain in just a few trading sessions for anyone who simply followed the price action and bought the breakout.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What’s great about breakout trading is that you focus on trend, price and volume. You don’t have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

One stock that’s trending within range of triggering a near-term breakout trade is Affymax (AFFY), a biopharmaceutical company committed to developing novel drugs to improve the treatment of serious and often life-threatening conditions. This stock has been destroyed by the sellers so far in 2013, with shares off by a whopping 85%.

Shares of AFFY were pounded lower by 85% on Monday after reports of severe allergic reactions in some kidney-disease patients, culminating in at least five deaths, prompted the firm to recall its flagship antianemia drug Omontys.

If you take a look at the chart for Affymax, you’ll see that this stock gapped down huge on Monday with massive downside volume, from over $16 to its recent low of $2.34 a share. Following that gap down in price, shares of AFFY have rebounded slightly to its recent high of $2.82 a share. This stock has now entered extremely oversold territory, since its current relative strength index reading is 11.33. Oversold can always get more oversold, but it’s also an area where a stock can experience a powerful bounce higher from.

Traders should now look for long-biased trades in AFFY if it manages to break out above some near-term overhead resistance at $2.82 a share high volume. Look for a sustained move or close above $2.82 a share with volume that hits near or above its three-month average action of 2.41 million shares. If that breakout triggers soon, then I expect to see a very large tradable bounce that could easily spike shares of AFFY by 30% to 40%.

Traders can look to buy AFFY off any weakness to anticipate that breakout and simply use a stop that sits just below $2.34 a share. One could also buy off strength once AFFY takes out $2.82 a share with volume and then simply use a stop that that’s a reasonable percentage from your entry.

Google

Another stock that’s trending within range of triggering a near-term breakout trade is Google (GOOG), which has been in play with the bulls so far in 2013, with shares up 13.5%.

If you take a look at the chart for Google, you’ll notice that this stock has been uptrending strong for the last four months, with shares soaring higher from its low $636 to its recent high of $808.97 a share. During that uptrend, shares of GOOG have mostly been making higher lows and higher highs, which is bullish technical price action. Shares of GOOG have recently pulled back to $784.40 a share and it’s now quickly moving within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in GOOG if it manages to break out above some near-term overhead resistance levels at $806.99 to $808.41 a share and then once it takes out its 52-week high of $808.97 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 2.34 million shares. If that breakout triggers soon, then GOOG will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $820 to $830 a share or higher.

Traders can look to buy GOOG off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $790 a share. One could also buy off strength once GOOG clears those breakout levels with volume and then simply use a stop that sits a few percentage points below your entry point.

Merrimack Pharmaceuticals

One name that’s quickly moving within range of triggering a near-term breakout trade is Merrimack Pharmaceuticals (MACK), a biopharmaceutical company discovering, developing and preparing to commercialize innovative medicines paired with companion diagnostics for the treatment of serious diseases, with an initial focus on cancer. This stock has been hit by the sellers during the last six months, with shares off by 21%.

If you look at the chart for Merrimack Pharmaceuticals, you’ll notice that this stock has been trending inside of a tight consolidation pattern for the last three months, with shares moving between $5.91 on the downside and $6.93 on the upside. Shares of MACK have now started to flirt with its 50-day moving average of $6.26 a share and it’s quickly moving within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in MACK if it manages to break out above some near-term overhead resistance levels at $6.48 to $6.66 a share and then once it takes out more resistance at $6.93 to its 200-day moving average at $7.12 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 352,520 shares. If that breakout triggers soon, then MACK will set up to re-test or possibly take its next major overhead resistance levels at $7.50 to $8 a share

Keep in mind that MACK is set to report earnings on Thursday, March 14 before the market open. This potential breakout trade could either trigger after or before MACK’s earnings date, so plan your trade accordingly if it triggers soon.

Traders can look to buy MACK off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support levels at $6.05 to $5.91 share. One can also buy MACK off strength once it clears those breakout levels with volume and then simply use a stop that sits right below its 50-day at $6.26 a share.

NuVasive

Another stock that’s moving within range of triggering a major breakout trade is NuVasive (NUVA), which is a medical device company focused on the design, development and marketing of products for the surgical treatment of spine disorders. This stock is off to a hot start in 2013, with shares up 20%.

If you look at the chart for NuVasive, you’ll notice that this stock has been uptrending very strong for the last four months, with shares soaring higher from its low of $12.35 to its intraday high of $18.70 a share. During that uptrend, shares of NUVA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NUVA within range of triggering a major breakout trade.

Traders should now look for long-biased trades in NUVA if it manages to break out above its 200-day moving average of $18.65 a share with high volume. Look for a sustained move or close above $18.65 a share with volume that registers near or above its three-month average volume of 553,042 shares. If that breakout triggers soon, then NVA will set up to re-fill some of its previous gap down zone from last October that started just above $23 a share.

Traders can look to buy NUVA off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average of $17 a share. One can also buy off strength once NUVA takes out its 200-day at $18.65 a share with volume and then simply use that sits just below $18 a share.

Threshold Pharmaceuticals

My final idea that’s trending very close to triggering a near-term breakout trade is Threshold Pharmaceuticals (THLD), which is a biotechnology company focused on the discovery and development of drugs targeting the microenvironment of solid tumors as novel treatments for patients living with cancer. This stock has been hit hard by the bears during the last six months, with shares off by 46%.

If you look at the chart for Threshold Pharmaceuticals, you’ll notice that this stock has started to uptrend for the last three months, with shares moving higher from its low of $4.04 to its high of $5.54 a share. During that uptrend, shares of THLD have been mostly making higher lows and higher highs, which is bullish technical price action. Shares of THLD are now trending just above its 50-day moving average of $4.53 a share and its quickly moving within range of triggering a near-term breakout trade above a key downtrend line.

Traders should now look for long-biased trades in THLD if it manages to break out above some near-term overhead resistance levels at $5.13 to $5.54 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 883,888 shares. If that breakout triggers soon, then THLD will set up to re-test or possibly take out its next major overhead resistance levels at $5.90 to its 200-day at $5.96 a share. Any high-volume move above $5.96 will then put $6.50 to $7.50 into range for shares of THLD.

Traders can look to buy THLD off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support levels at $4.36 to $4.28 a share. One could also buy THLD off strength once it takes out those breakout levels with volume and then simply use a stop that sits right below its 50-day moving average of $4.53 a share.

This stock is a favorite target of the short-sellers, since its current short interest as a percentage of its float is rather high at 14.4%. The bears have also been increasing their bets from the last reporting period by 4.1%, or by about 251,000 shares. If that breakout triggers soon, then THLD has the potential for a monster short-squeeze.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.